You are hired by the Council of Economic Advisors (CEA) as an economic consultant. The Chairperson of the CEA tells you that she believes the current unemployment rate is too high. The unemployment rate can be reduced if aggregate output increases. She wants to know what policy to pursue to increase aggregate output by $500 billion. The best estimate she has for the MPC is 0.5. Which of the following policies should you recommend?
A. cut taxes by $200 billion and to increase government purchases by $200 billion
B. cut taxes by $200 billion
C. increase government purchases by $200 billion
D. increase government purchases by $250 billion
Answer: D
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Refer to the figure below. In response to gradually falling inflation, this economy will eventually move from its short-run equilibrium to its long-run equilibrium. Graphically, this would be seen as 
A. long-run aggregate supply shifting leftward B. Short-run aggregate supply shifting upward C. Short-run aggregate supply shifting downward D. Aggregate demand shifting leftward
Which of the following is a way the government can stimulate saving?
A. Decrease interest rates B. Increase taxes C. Offering tax incentives for retirement accounts D. There is nothing the government can do to stimulate saving.
The real balance effect describes the change in
A) checking account balances that occur when the money supply increases or decreases. B) the value of physical assets (e.g., houses) that results from a change in the price level. C) the output producers produce as they attempt to balance their production in response to changes in consumers' demand. D) the value of cash holdings that results from a change in the price level. E) the balance of cash holdings that results from a change in the amount of income earned.
In the Keynesian model, suppose the Fed sets a target for the real interest rate
If the IS curve shifts down and to the left, and the Fed wants to keep output unchanged in the short run and the price level unchanged in the long run, what should the Fed do? Use the LR curve to formulate your answer.